David Moenning's Daily State of the Markets: 11/13

Hope and Disappointment

Although the Dow Jones Industrial Average wound up falling just 55 points yesterday, this headline hardly tells the whole story. In short, the carnage continued away from the venerable Dow and a day that began with some hope for a rebound turned ugly by the close.

The day began on a positive note with the market looking like a rebound was in the cards. Each of the major indices was up by about half a percent at mid-morning as traders shrugged off declines overseas and appeared to embrace a long-awaited drop in crude. The sentiment in technology seemed to improve with IBM's (IBM) purchase of Cognos (COGN) and even the beaten-down banks were in sigh-of-relief mode in response to a report that Citigroup (C), JP Morgan (JPM), and Bank of America (BAC) had agreed on a structure for the Superfund bailout.

A drop in crude oil definitely played an important role in the early enthusiasm. Although the December contract settled down only -$1.70 to $94.62, the talk of production increases by OPEC seemed to provide stock market investors hope that the end to crude’s rude rise was in sight. Over the weekend Saudi Arabia’s oil minister indicated that they would be discussing increased production at the December meeting. And while this idea was met with an awful lot of raised eyebrows (suddenly there is more crude to pump out of the ground?) the hope that production could be increased was enough to send the futures down on the day.

Even the beleaguered greenback was making noise about a turnaround, which, of course, helped crude’s decline and forced some selling in the metals. The dollar bounced off of Friday’s record lows and registered its largest gain against the Euro in more than a year. Although the bounce could definitely be considered of the dead-cat variety, the move reminded investors that the dollar might eventually stop falling.

However (insert long pause here), the hopefulness quickly faded after lunch as it became apparent that this is the bears’ ballgame right now. Although the beaten-down banks managed to hold on to some semblance of the morning rally, the selling of the leaders resumed and things got nasty again into the close.

In order to get a clear picture of the situation, all one need do is to glance at the charts of this year’s leaders such as Apple (AAPL), Google (GOOG), and almost any energy or materials company. Cutting to the chase, the leaders have been bludgeoned lately with declines of 25% or more being commonplace.

This type of action is actually quite normal during corrective phases and, in and of itself, isn’t a cause for alarm. By definition, leaders lead, and as a result, become extended after a prolonged run. Then whenever something bad happens, the shorts attack and the bulls stand aside until prices become attractive again.

But frankly, it's that last part that becomes tricky for the bulls at this stage of the game. Yes, Cisco (CSCO) said things look lumpy for the next quarter. So, does this mean tech should take a 15% haircut… or 20%... or should it be 25%? Frankly, we don’t know the answer to this question. But we do know that with Apple down -20% over the last 4 sessions, PetroChina (PTR) down -30%, and Google (GOOG) off by more than $110 over the same period, some of the froth has definitely come out of these market darlings.

Turning to this morning, we don’t have any economic news to review but the earnings report from a little company named Wal-Mart (WMT) has improved the mood dramatically. The nation’s largest retailer reported earnings that were $0.02 better than expectations and then raised guidance for the full year. So, after four straight days of selling and no corresponding bad news this morning, stocks look to be moving on up.

Running through the rest of the pre-game indicators; the overseas markets are little changed. Crude futures are heading down again with the latest quote showing the December contract off $0.87 to $93.75. Interest rates are a little higher this morning with the 10-yr trading at a yield of 4.23% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open higher. The Dow futures are currently ahead by about 60 points; the S&Ps are up by about 8 points, while the NASDAQ looks to be about 20 points above fair value at the moment.

Stocks “In Play” This Morning:

Today’s Earnings Before the Bell:

Home Depot (NYSE: HD) – Reported $0.59 vs. $0.60
Wal-Mart (NYSE: WMT) – Reported $0.69 vs. $0.67, Increases full year guidance

News, Upgrades/Downgrades/Brokerage Research:
Brooks Automation (Nasdaq: BRKS) – Upgraded at Bear Stearns
Sprint Nextel (NYSE: S) – Target reduced at Bernstein
Schlumberger (NYSE: SLB) – Upgraded at Calyon
Weatherford Intl (NYSE: WFT) – Upgraded at Calyon
Yahoo! (Nasdaq: YHOO) – Upgraded at CIBC
Repsol (NYSE: REP) – Upgraded at Credit Suisse
Tyson Foods (NYSE: TSN) – Upgraded at Deutsche Bank
Unilever (NYSE: UL) – Upgraded at Goldman Sachs
Autodesk (Nasdaq: ADSK) – Upgraded at Goldman Sachs

Mr. Moenning holds Long positions in stocks mentioned: AAPL

Note: All earnings reports compared to Reuter’s consensus estimates

** For More of David Moenning’s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.com

The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM’s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

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